STATEMENT OF E. F. PIERSON, CHAIRMAN OF THE BOARD, THE VENDO CO., KANSAS CITY, MO.

Mr. PIERSON. I am a past president of the chamber of commerce from Kansas City and past president of the National Automatic Merchandising Association.

The chamber of commerce of Kansas City is made up of 1,400 members, 90 percent of them employing less than 50 people.

The National Automatic Merchandising Association is made up of 900 members and their companies are the manufacturers and distributors of products through vending machines-merchandise products. Of these companies 98 percent employ less than 50 people.

There are some 50 manufacturers of automatic merchandising machines. Of that 50 they are all practically individually owned companies and are operated by people by companies having less than 50 people.

The purpose of bringing this point out is-we are talking about legislation today that is not primarily helpful to big business, although it does not harm them. It is primarily to help the smallbusiness man.

Mr. WILLIS. Let me ask this question. Every witness up to now has sounded that theme. On the other hand, most of the witnesses have said that the really lucrative patents somehow find their way into the groups of big business-large corporations. You understand, we cannot oppose or pass a bill just because it is for small inventors and small shots. It has to be a bill for everyone. If you push your theory to its logical extreme we will be helping these big boys that all of you say you are against.

Mr. PIERSON. No.

Mr. WILLIS. We cannot pass a bill only for the small fellows. Mr. PIERSON. I am not against large business, but we also need small business and through the years you who in Congress have tried to help small business. You have passed much legislation and some of it might have been better not to have been passed, but here is legislation where you are going to help restore to small business a right which was taken away from them by the Government. Most small businesses get started by having only one product to market, and that was true with our own company on April 1, 1942. We were manufacturing automatic merchandising equipment for beverages and ice cream, also coin changers.

Mr. WILLIS. Not slot machines?

Mr. PIERSON. Not at all. We had to notify 350 people they were without work. Prior to that time we tried to get defense business from the various agencies of the Army and Navy. We had talked to the War Resources Planning Board and they finally said, after repeated conferences with them, "You will not be put out of business in the event of war, for the reason that to win wars three ingredients are necessary: First, men, then material, and morale. In your business you will be able to furnish the men beverages to which they are

accustomed and which help keep up their morale, so you have no worry about being closed out of business." In spite of these assurances, on April 1, 1942, the Government said, "You are through manufacturing," so we had to drop 350 people from our payroll.

In 1942 after the war became more intense and the German submarines were sinking our ships on the eastern coast, practically in New York harbor, there was a great scramble on the part of the Government agencies for small businesses who had some engineering talent and who were somewhat versed in electronics, and as a result of this we obtained a research contract from the Air Corps. The purpose of this contract was to help locate a submarine from an airplane. President Roosevelt had heard of this device and urged the Air Corps to rush it into production, and because of the urgency of this item and the cooperation of the employees of the Vendo Co., we were cited by being awarded an Army-Navy E in the middle of August, which was only 90 days after getting our first contract from the armed services. Mr. WILLIS. When were you incorporated?

Mr. PIERSON. 1937.

Mr. WILLIS. Generally speaking, if you take the 4 years immediately preceding our entry into the war and then you take the 4 years of the war, and you take the 4 years since the war, and apply both ends against the middle, when you went into this new venture you spoke of, were your gross earnings just as great during the war as before and after? If so, what is the difference between your corporation and the big corporations. I want to get away from the proposition that you might have had more money if your patent had not been impaired. Speaking of gross dollars and net earnings, did your corporation earn less during the 4 years of the war rather than the 4 years before and after?

Mr. PIERSON. If we had kept on we would have made considerably more money. We made less money than we did on the average of the last year before we went into the war.

Mr. WILLIS. Was that because of high taxes?

Mr. PIERSON. It was a combination of a number of things. The net dollars were considerably less in spite of the fact that we did seven times the dollar volume for the Government in building these devices.

This legislation gentlemen, is merely restoring to the person what one agency of the Government gave in the form of a patent and another agency of the Government said, "You cannot use it." I think it would be fair to restore to the inventor that right which it took away from him. It is not going to cost anyone anything and to restore something for which the Government accepted a fee certainly would not be inequitable.

Mr. WILLIS. You say your corporation earned less. You did not say how much less.

Mr. PIERSON. I will be glad to submit those figures to you.

Mr. WILLIS. You take a filling station operator. We all had to give something to the war effort. As a matter of fact, although there was OPA and controls, every businessman I know made as much money during the war as he did before. So, isn't it possible you might have made more money and aren't we favoring you?

Mr. PIERSON. No, we have a patent. I do not believe you are favoring us, for in our case we have a contractual relationship with one

department of the Government and another branch of the Government takes this away from us. I don't believe you can find a parallel situation to this.

Mr. WILLIS. If all you did is to give up your rights to make more money, if that is all you gave up-to shift your avenue of profit from the patented device to another, and on the whole you came out even, then I say you did just your share of the war effort.

Mr. PIERSON. That is why I am not talking of our company alone. I said I was past president of the chamber of commerce and past president of the National Automatic Merchandising Association. I can cite many companies who never have come back. They have lost everything with it.

Mr. WILLIS. There is another witness who has appeared before us that is in that category.

Mr. PIERSON. If you would like to have that substantiated I am sure I can give you evidence to that effect.

Mr. BRYSON. In other words, your view is that the automatic machine business suffered in a peculiar way?

Mr. PIERSON. Correct.

Mr. BRYSON. This textile man here I have a great interest in textiles. He points out how he suffered but you say people did manufacture automatic machines?

Mr. PIERSON. No, when the war started, I believe the manufactures of all automatic merchandising machines were stopped. In our particular case we helped pioneer a new industry and because of the machines manufactured up to the beginning of the war it was established conclusively during the war that they could be made successfully and that the American public liked using them, so as a result of that, those who started this new industry had as competitors after the war such companies as Westinghouse, F. L. Jacobs Co. and others. Mr. BRYSON. We are very much obliged to you. You may file a statement if you wish.

We have a letter from the leadership requesting our presence in the House. If there are no further witnesses

We will hear you, Mr. Rose.

STATEMENT OF PAUL A. ROSE, CHAIRMAN, COMMITTEE ON LAWS AND RULES, AMERICAN PATENT LAW ASSOCIATION

Mr. ROSE. I am chairman of the laws and rules committee of the American Patent Law Association and appear here by direction of the board of managers of the association to present its views relative to H. R. 323 and H. R. 4054.

The American Patent Law Association is opposed in principle to the passage of H. R. 323 and H. R. 4054, or any bill providing for the extension of the terms of patents where the use, exploitation, or promotion of the inventions covered thereby was prevented, impaired, or delayed by reason of shortage of materials, governmental regulations, or the like, resulting from the existence of a state of war or national emergency, or the grant of a royalty-free license to the United States. All of these bills have for their purpose the granting of relief in the form of extension of the terms of patents to patent owners who can show reduction in income or that the normal use or exploitation of

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the patented invention was reduced, delayed, or prevented by causes traceable to war or national emergency, and H. R. 323 would include the grant of royalty-free license to the United States as an additional reason for extension.

Similar proposals have been made in the past and have failed to meet the approval of this committee or the Congress, although a bill providing for the extension of the terms of patents of those who served in the Armed Forces was enacted into law, being Public Law 598 of the Eighty-first Congress, approved June 30, 1950.

The American Patent Law Association has consistently been opposed to the philosophy that patents or patent owners should be treated as a special class and given relief not afforded to other kinds of property and property owners because of loss or impairment of income or opportunity for exploitation as the result of war or national emergency. Wars and national emergencies inevitably injure or restrict the rights and privileges of all of the people to a greater or lesser degree. Individual freedom of action and of opportunity are restricted or curtailed in many lines of endeavor for the common good to meet the exigencies of war.

Men are drafted and sent to fight and die, many businesses are forced to close their doors, either because their owners are drafted or because of shortages of materials or products, or economic restrictions and controls. In many instances these losses can never be recouped, even though the owners are fortunate enough to return alive and postwar conditions result in lifting of restrictions. Such conditions as the result of war are accepted by the people as the price that must be paid for survival, and no governmental relief is expected or demanded.

The question posed by the bills under consideration is whether patent owners should be placed in a special class and be given special relief in the form of extension of the terms of their patents under similar circumstances. We think they should not.

The grant of a patent carries with it no guaranty that the patentee shall receive any income from his invention, or that he will be able to produce it, but merely gives him a greater opportunity to do so by giving him the right to exclude others from practicing the patented invention for a period of 17 years. The constitutional purpose of this grant of the right of exclusion for a limited period is to stimulate invention and the disclosure of the same for ultimate use and enjoyment by the general public.

Thus, if an invention is of sufficient value and meets a public demand, the patentee has the opportunity of reaping a reward either through profits from the supply of the invention in a protected market or by deriving royalties through licensing others to practice the invention during the term of the patent. When the term of the patent expires the invention passes into the public domain and others are free to practice the invention on equal terms with the patentee or his former licensee.

The existence of war or national emergency does not curtail the patent right or the right to exclude others from practicing the patented invention, but the shortage of materials or restrictions on the use thereof for certain purposes may curtail the manufacture of similar types or classes of goods which are not patented, but to no greater extent.

Mr. WILLIS. Let me ask you this question. Do you think there is very much difference between the position of patent holders who went through this war period because of shortage of materials and the position of patentees who had to go through the darkness of the depths of the depression, so far as enjoyment of fruits of their genius is concerned?

Mr. ROSE. There is very little difference. The reason why they did not get returns from their patents through the depression years was because there was no demand for their product.

Mr. BRYSON. The people did not have the money to buy.

Mr. ROSE. That is right. It was the low level of the national economy which lowered the production level. Now, in the case of the war it was a denial of materials and shortage of labor or other reasons, unless the patent covered an item useful for the war effort. In those cases the need sky-rocketed.

The point I want to make is that the wartime regulations did not curtail the patent right. The right to prosecute infringers of the patent still existed.

Mr. CRUMPACKER. Right at that point, let me interrupt, you say the patent does not guarantee any returns. That is true. What in effect it does guarantee is the right to exploit the invention for a period of 17 years.

Mr. ROSE. It guarantees you the right to exclude others from exploiting the invention. It is not strictly speaking a right to exploit the invention.

Mr. CRUMPACKER. In a practical sense what that means is that they have 17 years in which to try to gain commercial advantage from a patented idea?

Mr. ROSE. That is right.

Mr. CRUMPACKER. And due to circumstances of the war some were denied that right.

Mr. ROSE. They were denied the right only to the same extent as others in the same line of business who could not get materials. Mr. CRUMPACKER. But other lines of business did not have a time limit.

Mr. ROSE. That is right. But there is no guaranty that you or I or anyone else will live any given length of time. People who gave up their business to go into the Navy and Army, when they returned, had no guaranty of opportunity to get that longevity back. The Government does not guarantee them the right to restore those years. Mr. CRUMPACKER. The Government has spent a good many billions of dollars to compensate veterans for the time lost.

Mr. ROSE. Insofar as the right to produce a particular item is concerned, the patentee is no better off nor worse off than producers of similar unpatented items. Each may suffer reduction of income or losses, or be forced to close his business because of lack of materials or governmental regulations restricting production of the class of goods concerned.

The thesis advanced by some that the grant of a patent carries with it some sort of implied guaranty that the patentee shall derive some profit from the patent or from practice of the patented invention is unsound. Even in time of peace a patentee may be prevented from deriving profit from his invention because of inability to produce it, lack of public demand for it, or the existence of a dominating patent